Personal loans are offered by banks, credit unions and online lenders. There are several options available, but not all are worth considering. More importantly, some lenders offer more enticing personal loan products than others. Lenders will also offer applicants different rates depending on the potential borrower’s financial situation.
To find the best personal loan lender for you, you want to shop around and evaluate the types of loans each lender offers. You will need to consider APRs, fees and the overall experience you can expect as a customer to make an informed decision.
Why it is important to shop around for lenders
It’s vital that you shop around with several lenders to ensure you get the best deal on a personal loan. If you settle for a loan with the first lender you find, you could get a significantly higher interest rate than you’d qualify for elsewhere. You might receive a monthly payment that stretches your budget thin, and you could pay several hundred or thousands of dollars more in interest over the life of the loan.
Many lenders allow you to get pre-qualified online in minutes. You can view loan estimates without impacting your credit score and compare them to the other personal loans you’re considering. Doing this can help you find the least expensive loan.
What factors to use to evaluate lenders
When comparing personal loan options, you want to evaluate the lender’s reputation along with the interest rates and fees they charge. It’s also important to consider the types of loans offered as some may not work for you.
The interest rate, or cost of borrowing, is generally determined by your credit score and loan term. Lenders tend to advertise a low-interest rate to entice customers. However, the lowest rates are typically reserved for customers with excellent credit. A good credit score could also get you a competitive interest.
If you have less than perfect credit, you can expect to pay more in interest. So, you should search for lenders that weigh other factors, like your job history or educational background, to have a better shot at getting a personal loan with a competitive interest rate.
Does the lender charge application, origination or prepayment fees? Depending on how much you borrow, these costs could add up rather quickly, even if they’re rolled into the loan.
To illustrate, assume you get three quotes for a $10,000 loan. The first lender charges an origination fee of 8 percent, while the other two charge 6 percent and 2 percent, respectively. You’ll pay $800, $600 or $200 in addition to principal and interest, depending on which personal loan you choose.
Many lenders offer personal loans without application or origination fees and won’t charge you a penalty if you pay off your loan early. But these aren’t the only fees to consider – examine the fee schedule to determine the amount the lender charges for late or returned payments.
Don’t let fees disqualify a certain lender, however. In some cases, the loan costs could still be less even if you have to pay some fees.
What are the hours of operation for the lenders you’re considering? Are they available by phone, email or chat? Can you visit a physical location to get assistance? These are just a few questions to ponder as you evaluate lenders to gauge if they’re easily accessible.
Types of loans offered
Do you have a specific purpose for the loan, or will you use the funds to get back on track financially? Lenders usually don’t restrict the way that funds can be used. However, personal loans are either secured (or require collateral for approval) or unsecured. They also come with a fixed rate that remains constant or a variable interest rate that changes over time, and many are marketed for a specific purpose. Common categories include:
- Bad credit loans are offered by lenders to customers with past credit challenges
- Debt consolidation loans let you pay off multiple debts with a new loan, typically with a lower interest rate, and streamline the repayment process by making a single monthly payment
- Emergency loans are designed to cover unexpected expenses and last-minute financial emergencies
- Home renovation loans are used to make costly upgrades to your home without tapping into the equity you’ve built up
How to pick the best lender for you
Ultimately, the answer of the best lender for you comes down to the lender’s reputation and the loan terms they’re offering. Although your credit score and overall financial history will determine if you qualify for a loan, you want to get quotes from several lenders and evaluate the interest rate and fees. It’s also important that the lender has a track record of providing exceptional customer support to its past and current customers.
Before you apply for a loan, run the numbers to ensure you’re making an informed decision. A higher loan origination fee doesn’t mean the lender isn’t worth considering, mainly if the interest rate is low and vice-versa. A personal loan from a lender that isn’t reputable or provides underwhelming customer service could prove to be even more costly.
With some research and time, you can sort from the best personal loan lenders to find the one best for your situation.